LET’S TALK TAXES – Offshore Tax Evasion Cases

“The Tax Division's top litigation priority is the concerted civil and criminal effort to combat the serious problem of non-compliance with our tax laws by U.S. taxpayers using secret offshore bank accounts.”
US Department of Justice, Offshore Compliance Initiative

2008 was a pivotal year in the IRS Offshore tax efforts.  It was the year that the IRS began aggressively pursuing US taxpayers with undeclared foreign accounts.  According to the US Department of Justice, “To date, approximately 150 investigations of offshore-banking clients have been initiated, of which 36 client cases have been charged, with 31 guilty pleas having been entered, 2 convicted after trial, and 5 awaiting trial.”
 
In July 2008, in an unprecedented move, the IRS filed a John Doe Summons against Union Bank of Switzerland (UBS), the largest Swiss multinational bank, an action which ultimately dealt a staggering blow to Swiss Bank secrecy.  On the heels of this success, the IRS moved on to target other multinational banks such as Credit Suisse, Deutsche Bank, HSBC Holdings PLC, Swiss Cantonal Banks, and Wegelin & Co.  These actions by the IRS have had a significant impact on international banks.  Recently in 2013, Weigelin & Co., the oldest Swiss bank was the first foreign bank to plead guilty to charges of aiding and abetting US taxpayers in concealing foreign bank accounts.
 
The John Doe summons against foreign banks helped IRS gather data relating to US taxpayers with undisclosed bank accounts.  Since 2009, with this evidence, many clients of UBS have been successfully charged and convicted.  The IRS continues to expand its prosecutions.  Recently it began prosecuting several HSBC clients, including businessmen Vaibhav Dahake, Ashvin Desai, Sanjay Sethi and neurosurgeon Arvind Ahuja.

The IRS has offered several Offshore Voluntary Disclosure Programs for US taxpayers with previously undisclosed foreign bank accounts and unreported foreign income.  So far, over 33,000 taxpayers have taken advantage of these programs.  However, the high penalty regime of this program, and the requirement to file amended returns and FBARs for all years after 2003, is confusing and daunting to many.

In an attempt to limit the possibilities available to US taxpayers, the IRS has unequivocally discouraged quiet disclosures.  Nevertheless, many US taxpayers continue to resort to this option.  Per IRS, “those taxpayers making ‘quiet’ disclosures should be aware of the risk of being examined and potentially criminally prosecuted for all applicable years.”

Disclaimer: Every individual’s tax situation is different and tax situations change over time. This article is intended to give general information to enable the reader to discuss their situation with a tax adviser.  It is not intended to be tax or legal advice and should not be construed as such.

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